2020 (10) TMI 1165 - HC - Income Tax

Court affirms deductions under Income Tax Act, validates enhanced claim without revised return, and dismisses appeals

Pr. Commissioner of Income Tax, Bangalore, Deputy Commissioner of Income, Circle - 11 (5) Bangalore. Versus M/s. Jeans Knit Pvt. Ltd.,

Pr. Commissioner of Income Tax, Bangalore, Deputy Commissioner of Income, Circle - 11 (5) Bangalore. Versus M/s. Jeans Knit Pvt. Ltd., - [2021] 430 ITR ... Issues Involved:1. Eligibility for deduction under Section 10B of the Income Tax Act.2. The tribunal's affirmation of the first appellate authority's findings without its own findings.3. Consideration of enhanced deduction claim without revised return.4. Inclusion of security premium account in accumulated profit under Section 2(22)(e) of the IT Act.Detailed Analysis:1. Eligibility for Deduction under Section 10B:The central issue was whether the assessee was entitled to a deduction under Section 10B of the Income Tax Act. The revenue argued that the assessee did not fulfill the conditions for this deduction, asserting that it was formed by reconstructing an existing business (FFIPL) and using old machinery. The Assessing Officer disallowed the deduction, citing that the assessee took over FFIPL's premises and machinery and was dependent on FFIPL’s infrastructure and customers.However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) found otherwise. The CIT(A) meticulously analyzed the evidence, concluding that the assessee was a separate entity, operational since FY 2005-06, and had not transferred old machinery from FFIPL during the relevant assessment years. The tribunal upheld these findings, noting that the assessee had invested significantly in new plant and machinery and had its own customers and employees. The court affirmed these concurrent findings, stating they were based on substantial evidence and not perverse.2. Tribunal's Affirmation Without Own Findings:The revenue contended that the tribunal's order was perverse as it merely affirmed the CIT(A)’s findings without independent analysis. The tribunal, however, provided detailed reasons for its agreement with the CIT(A), emphasizing that the revenue failed to rebut the CIT(A)’s findings with contrary evidence. The court found no merit in the revenue's argument, noting that the tribunal's order was based on a thorough review of the evidence and was not perverse.3. Consideration of Enhanced Deduction Claim:In I.T.A.No.571/2016, the issue was whether the tribunal was correct in directing the Assessing Officer to consider the assessee's enhanced deduction claim without a revised return. The tribunal referenced the Supreme Court's decision in Goetze (India) Ltd., which allows higher authorities to consider new claims made during assessment proceedings. The court upheld the tribunal's decision, noting that the tribunal correctly applied the law and directed the Assessing Officer to verify the revised claim.4. Inclusion of Security Premium Account in Accumulated Profit:In I.T.A.No.580/2016, the question was whether the security premium account should be considered part of accumulated profit under Section 2(22)(e) of the IT Act. The CIT(A) and the tribunal found that the assessee's reserves and surplus did not include accumulated profits but rather reflected losses and security premiums. The court upheld these findings, noting they were based on substantial evidence and were not perverse.Conclusion:The court dismissed the appeals, affirming that the assessee was entitled to deductions under Section 10B, the tribunal's findings were not perverse, the enhanced deduction claim was rightly considered, and the security premium account was correctly excluded from accumulated profits. The concurrent findings of the lower authorities were based on meticulous evidence and upheld by the court.